A melt-up, then a melt-down in 2014
By: Clif Droke
Tuesday, 24 December 2013
Market events such as crashes and panics are thought by economists to be random, unpredictable events. To the contrary, such events are nothing if not predictable and often arrive with recognizable regularity. A cursory examination of the last few decades will prove this to be conclusive.
Writing in Barron’s, Randall Forsyth pointed out that each cycle of 40-years plus “has been marked by blowups.” He cited the following debacles: Penn Central (1970), Herstatt Bank (1974), the Hunt Brothers (1980), the October 1987 crash, the S&L crash (1990), the mortgage securities and Mexican crises of 1994, the emerging-market debt crises of 1997-98, the dot-com crash of 2000, and the housing crash of 2007-08.
“Two things stand out” from these crises, writes Forsyth: “The calamities escalated in scale. And each came during or at the end of a tightening cycle by the Federal Reserve.”
Forsyth’s observation that financial crises have increased in magnitude since circa 1974 is a testament to the increasing strength of the “winter” phase of the Kress 120-year cycle. The periodic market crashes of each decade since the 1970s have progressively worsened due to this acceleration of deflationary pressure exerted by the long cycle.
The 120-year cycle is a composite cycle, which means it has multiple components. Arguably the most dominant of these components is the 40-year cycle. There are three such 40-year cycle bottoms within a complete 120-year cycle. Each previous 40-year cycle was accompanied by a significant market event or economic crisis. It would be highly irregular if 2014 didn’t witness a discernible setback of some sort with the 40-year cycle bottoming later next year.